NAVER Corporation (A035420) Earnings Call Transcript & Summary

Good morning, and good evening. Now we will begin the conference of the fiscal year 2021 second quarter earnings results by NAVER. Today's conference call will be consecutively interpreted for the convenience of domestic and international investors. The conference call will include a summary of second quarter earnings followed by a Q&A session.

Good morning. I am Kim Min, Director of IR. Thank you for joining NAVER's Q2 2021 Earnings Presentation. Joining our call today we have CEO, Han Seong-Sook; and CFO, Park Sang-Jin. The earnings results are K-IFRS based provided for the purpose of timely communications and are yet to be audited by an independent auditor and hence are subject to change after the review. Let me invite our CEO, Han, to present on the business highlights.

Good morning, I'm CEO, Han Seong-Sook. Thank you for joining our earnings release today. NAVER has seen a pickup in speed for 5 consecutive quarters in terms of its growth as our investments for both domestic and global markets is bringing fruition. To continue with this growth, we have made efforts in global expansion, strategic partnerships and AI capabilities. I will walk through these major achievements. With the merger of Webtoon and Wattpad completed in May, we became a #1 storytelling platform used by around 6 million creators and 167 million users. As a first phase in this synergy creation, end of June, we launched Wattpad Webtoon Studio. Supported by more than 1 billion source IPs, we will spur ahead with the global content business. Thanks to upgraded brand awareness and brand equity, original content production is well underway in collaboration with partners who have popular global IPs. With Marvel's Black Widow featuring in the Webtoon in July, we plan to expand on the lineup of titles for the second half of the year. Also by raising KRW 100 billion bond fund, we plan to use proven IPs in Webtoon to produce motion pictures and publications so as to improve profitability of the IP business and quickly expand NAVER's global content ecosystem. In Q2, there was important progress in commerce strategy, which was announced during the March Analyst Day. On the 13 months, we launched NFA, a fulfillment platform based on data to service NAVER's 450,000 merchants. And for 4 days after the opening, number of fulfillment quotations increased by more than tenfold, gaining greater level of interest. Many small merchants, who are unable to use fulfillment services, will now be able to receive fulfillment services from 7 companies equipped with frozen and cold chain system through NAVER platform as well as various logistical data and tools based on AI technology and API connections. NAVER and CJ Logistics agreed to expand fulfillment premise dedicated to the sellers on NAVER by 10x to 200,000 pyeong, agreeing to set out same-day delivery fulfillment system nationwide. This collaboration will first apply to household necessities where speedy delivery is key. And by expanding partnerships with competent logistics providers, we will eventually complete a delivery system that span across different product categories. Our first collaboration with e-mart, with whom we had a share swap last March, was local Specialty Challenge Project launched this month. This will help small sellers and merchants to showcase their branded products and secure off-line distribution channels. And in Q4, we launched e-mart grocery service on NAVER platform, creating synergies from both on- and off-line. During the May NAVER AI Now, we introduced HyperCLOVA, which is the biggest scale artificial intelligence. By setting out technology foundation to solve more complex and varied problems, we believe HyperCLOVA with help with search database optimization and result improvement, merchant solution commercialization, efficient logistics and expanding cloud product offerings, which are NAVER's core project. NAVER's growth is continuing on the back of preemptive technology investments that have been ongoing for an extended period of time. I will now move on to each business line and their respective performances. By adopting AI technology, we were able to provide more appropriate and personalized search results and expanded search DB, i.e. UGC, local and shopping. So despite higher base effect of last year, we have seen growth for queries that relate to information search and business. In particular, vlogs have become a new SMS platform for teens and 20s, and the content that they create account for more than 40%, and that volume continues to grow. Influencer search has seen content grow by twofold compared to when it was launched in 2019 by introducing stronger creator compensation and improvements in content. By offering better search results that surface by topic based on the collection of high-quality UGCs that best cater to what users are looking for, we strengthened access to content and efficiency of search. Under NAVER's mobile main screen, we further added commerce, local entertainment content and expanded AI-based recommendations [indiscernible] segment and offer personalized tools. As such, we are enhancing usability by catering to the interest and taste of more than 30 million users on a daily basis. We are seeing improvements across the entire application. And combined with monetization strategies that consider both user and the business for the performance ads, search platform revenue is recovering, and we are trying various things to continue this trend. Underpinned by Smart Place, which is a platform for local vendors, we support the growth of 2 million local businesses by way of introducing smart ordering and booking features. As a result, together with improvements in search database quality, we saw local queries increase -- rise very sharply from KRW 1.3 billion in Q1 2019 to KRW 2 billion in the second quarter. To help local vendors accentuate their appeal, this month, we are changing the review system based on the star points to one that is based on keywords taken from those user reviews. In just 2 weeks since the opening of this feature, there are now more than 320,000 restaurants with a keywords reviews, and we are currently getting positive feedback from both businesses and the users. In July, we are also running beta test for Smart Place advertisement to respond to growing marketing needs from businesses that are becoming successful on NAVER Place. And in just 2 weeks after opening, more than 10,000 advertisers signed up. Just as commerce successfully drove seamless flow across smart store to NAVER Pay, we would develop Smart Place as a business framework that is on par with Smart Store. Despite various constraints, including higher base effects, labor strike by delivery providers and lessening social-distancing requirements, Q2 commerce revenue continued high growth of 43% across all segments. Total number of small stores was up 32%, surpassing 450,000 with quarterly GMV up by more than 40% year-on-year. Even a smaller impact from COVID spread in the second quarter, GMV growth of Smart Stores and new business numbers all were higher compared to the pre-COVID time. As such, we can see the digital transformation for the sellers and users continue to take place via the commerce platform of NAVER. In the second half, we expect meaningful growth from new commerce businesses, i.e., brand store, Shopping LIVE! and merchant solutions, which will be new engines for growth. Number of brand store merchants was up 5x to 453 with GMV up 5x year-on-year. Shopping LIVE! quarterly revenue was up 17x on year, supported by technology, diversity and scalability, setting itself up as a solid #1 service with more than 50% market share. As of June, total number of broadcast sessions were up 37x year-on-year, number of sellers up by 13x on year. And with 55% of GMV coming from SMEs, we will be able to further widen the gap we enjoy compared to the late entrants. Merchant solutions, which we introduced during Analyst Day in March, will begin beta testing from August. We saw that brands wanted to creatively use various solutions of NAVER like advertisement, Shopping LIVE! and Brand Day around the Brand Store as a pivot, and we plan to, therefore, expand the lineup of offerings. To support different modes of payment, we will launch subscription in May -- in July and expand into scheduled payment, rental as well as other solutions. We have planned to start beta test for Smart Message so as to continue to develop customer relationships and Brand Analytics Plus that provides sophisticated analysis of the purchase data and statistics and new marketing integrated solutions like member Information link. Also, by adopting logistics solutions connected to outside malls through AiTEMS and NFA, we will build out a lineup of offerings like the data analysis and business management across Brand Stores and Smart Store operations so as to contribute to the greater success of our merchant partners. In Q2, NAVER Pay GMV was up 47% on year to KRW 9.1 trillion on [indiscernible] and Smart Store and outside merchant base and stronger loyalty driven by membership and NAVER Bankbook. In Q2, new large merchants like Korean Air, Agoda, S.I.VILLAGE were added, driving up number of online [ off-platform ] malls to 69,000, which is 4,000 stores more Q-on-Q. And on better performance from affinity malls like Yeouido, Nike, [indiscernible] market who ran their own point promotions, GMV from such outside partnership was up 55% year-on-year. We were also able to confirm good data test results from buy-now-pay-later services newly launched in Q2. And so we plan to expand on the scope of purchases for that beta test going forward. We will continue to upgrade credit scoring models so that by next year, NAVER Pay users can enjoy the convenience of the service supported by stability in services. With solid landing of buy-now-pay-later services, we will explore business opportunities and broaden into a more innovative fintech service areas. NAVER Cloud platform revenue in Q2 was up 77% year-on-year as we quickly embraced demand for cloud transition. NAVER Cloud was selected as the standard cloud provider for Korea's flagship banking institution NH Nonghyup Bank. Also, in the midst fierce competition with top global service providers, we entered into a B2B platform MOU with Samsung Life and Samsung Engineering, adding yet other affiliates of Samsung group following Samsung Electronics. We plan to play not only in public, finance, health care and enterprise segments of the market but also expand on offering existing tools and solutions for sellers, local businesses and advertisers in the NAVER ecosystem. With Asia's biggest data center, HyperCLOVA AI and NAVER LABS robotics, we have a strong basis to compete with global peers through NAVER's preemptive technology investment in the fast-growing B2B market. We were moving to our second building, 174, end of this year equipped with NAVER LABS cloud robotics system. Many premier technologies of NAVER LABS, known for its premier autonomous driving technology, maps development and robotics design capabilities will be validated via is service robust in the building. After developing B2B solutions for the future and going through internal validation, we plan to develop it as our future source of revenue. Lastly, let me update you on our ESG efforts and plans. Last May, to achieve 2040 carbon-negative targets, we announced to transition to 60% renewable energy for electricity used for our IDCs and office building by 2030. Under this goal, we received ISO 14001 certification in July to build out environmentally friendly corporate operational system and have exerted efforts to broaden the ecofriendly ecosystem. From end of June, we are using ecofriendly packaging 100% for stores on NAVER at Konjiam in Gunpo center of CJ Logistics. Starting with Gunpo center in August, we will adopt and expand ecofriendly smart packaging solutions that do away with over packaging practices. In line with ecofriendly consumption trends, we have started to provide environmental marks and certification information on products sold on the Smart Store and we try out new things as we go. With respect to shortcomings we are experiencing regarding healthy organizational culture, we will take that as a priority area to tackle in the second half of the year. NAVER yet again showed its potential for sustainable growth through its technology service and business model innovation by strengthening partnership with our strategic partners and going full force at global contract IT business, we are solidly laying down the groundwork for future growth. Supported by robust domestic businesses, we hope to show you visible global performance in proven areas of search, commerce and content. We ask for your support of our staff, partners and investors on this relentless challenge that NAVER is taking on. Now I will hand it over to CFO, Park Sang-Jin, for financial highlights.

Good morning. This is Park Sang-Jin, the CFO. NAVER's Q2 consolidated operating revenue was up 30.4% on year and 11% on the quarter, reporting record high KRW 1,663.5 billion. For 5 consecutive quarters, we recorded higher revenue growth. So despite increase in stock-based compensation expenses linked to the changes in the share price, consolidated operating profit was up 8.9% year-on-year and 16.2% on quarter to KRW 335.6 billion. Adjusted EBITDA, which shows NAVER's cash-generating capacity, was up 19.5% on year and 9% on quarter to record high KRW 480.4 billion. Consolidated net profit was up 496% on year to KRW 540.6 billion on valuation gains from financial assets and equity method gains from A Holdings. This is KRW 330 billion higher compared to last year's quarterly average net profit, and we expect net profit rise against operating profit will continue to be steep. Breakdown of Q2 operating revenue is as follows. On search quality improvements and higher efficiencies, search platform was up 21.8% on year and 9.7% on quarter to KRW 826 billion. Performance ad growth continued with display revenue going up 48% year-on-year. The growth of Brand Store and SME's online migration, shopping search ad revenue increased by more than 40% year-on-year. Accordingly, total commerce revenue was up 42.6% on year and 12.6% on quarter, reporting KRW 365.3 billion. For fintech following Q1, an expansion of alliance partners and Pay GMV growth, revenue was up 41.2% on year and 11% on quarter to KRW 232.6 billion. Webtoon revenue was up 52.7% on year, but with decline in V LIVE performance, content revenue was up 28.2% on year and up 10.7% on quarter to KRW 144.8 billion. For cloud, on higher demand for public cloud, revenue was up 48.1% on year and 16.2% on quarter, reporting KRW 94.9 billion. Next is on expense items. Development and operations expense saw a decline in stock-based compensation Q-on-Q on lower equity volatility. But on hiring of talent, labor expense increased, coming in at KRW 399.6 billion, up 38% on year and 6.8% on quarter. Driven by overall revenue growth and accompanying rise in expenses, i.e., payment and sales commissions, Pay's basic points, content commissions and other revenue-linked expenses, Partner expense was up 36.1% on year and 14.1% on quarter to KRW 581.7 billion. With greater investment into global server, infrastructure, which led to greater depreciation burden, infrastructure expense was up 25.3% on year and 10.1% on quarter to KRW 170.6 billion. Lastly, we're continuing point promotions for NAVER Pay. Undertaken to expand the membership base, Webtoon's global marketing spend declined Q-on-Q, bringing marketing expense up 53.4% on year and 2.9% on quarter, reporting KRW 176 billion. As previously mentioned, 30.4% top line growth year-on-year was record high quarterly growth in 5 years. We believe that's the test to NAVER's strength in turning the crisis brought on by COVID into an opportunity. This is a fruition of our continued investment into new growth businesses, and we plan to build on the fulfillment network and membership base in the second half of the year and invest to expand our global content IP business and B2B infrastructure to bring top line growth to our investors. Our business direction is not set on short-term profit gains, but we expect bottom line profits to continue to be around the first half level in the remaining year as well. This ends Q2 financial highlights. We will now take your questions.

[Operator Instructions] The first question will be provided by Kim Sung Eun from Macquarie Securities.

I would like to ask you 2 questions. I see that your search platform performance has been quite positive. Could you provide some color as to what the background that actually drove this -- that drove this and also as we enter into the second half, what is your outlook or expectations? If you could also share with us the guidance, that will be appreciated. Second question is, you've mentioned that you will be beta-testing your merchant solutions. Can you share with us what the solution lineup looks like and what your monetization plans are going to be? And what impact would the merchant solutions have? Would it have an impact on the blended take rates? Or would it impact your subscription?

This is CFO, Park Sang-Jin, responding to your first question. With regards to this year's search platform, we were able to actually enhance the efficiencies relating to our search ad quality and also applied AI technology as well as we've continued to launch new products. And thanks to the growth of our performance ad, we -- for the first half of the year, we have been setting our target of a double-digit growth in terms of the growth. And we will, in the second half as well, continue on with these efforts. We will also try to expand our advertisement coverage to other segments like shopping, local, finance and travel. And also, we continue to expand on our advertiser pool, including the brand stores as well as local merchants as well so that we can continue on with the high growth trends.

This is CEO, Han Seong-Sook. With regard to your question about the merchant solution and our monetization plan, as we've seen growth of the merchants and vendors of both Smart Store and Brand Stores, we were able to identify that there was greater need for them to utilize effective tools. So in the second half of the year, we are planning to run a number of beta tests with a view to actually launch those services by year 2022. And also by year 2023, we hope to actually lay down the framework and basis to provide a better purchase, payment, customer management and data analysts as well as business management. So basically, that is our objective for 2023. At this point in time, in terms of the types of lineup of solutions that we are currently considering, we are looking at Brand Analytics Plus, which is a higher and more sophisticated brand analytics tool as well as strengthening our showcase features that will really help showcase new products and also ways to better show the broad content. And we will be testing monetization and attaching a certain fee on the use of the smart messaging, TalkTalk, making that into a 4 of these services. So those are currently under testing as well, as well as optimizing the smart message marketing and looking at the possibility of a scheduled subscription for the regular delivery products as well as when people actually submit a request for quotation based on the NFA logistical framework, we are currently testing that as well and inventory management of the branded stores and smart message based automatic counseling features and different types of membership connections with the outside malls. So all of these we are currently envisioning to test and provide as part of our merchant solutions. Basically, we believe that the businesses are looking forward to such helpful tools, which will really help with the efficiencies of their business operations. It's very hard to say at this point in time what the monetization or how the monetization will come into play as we go forward, but we believe that as the businesses -- with regards to the feedback that we have gotten at this point in time, the feedback from the businesses have been quite positive with regards to making these solutions and attaching a certain fee to it. So from now on, we will continue on as well to make sure that we develop the solutions so that we could really help our NAVER partners to grow well and to bring a very sound basis for monetization.

The following question will be presented by Eric Cha from Goldman Sachs.

I don't know whether my recollection is correct, but I think I heard your Smart Store growth was around 40%. Depending on how you look at it, I think some may say that you've underperformed the expectations of the market in terms of the growth. Was there any special reason behind that? And do you believe that your full year annual guidance can be achieved? And can you also provide some color on the overall competitive landscape regarding the e-commerce market. And you've invested together with CJ Logistics to actually increase your logistical capacity. So with that increased capacity, including the branded stores for your Smart Store, how much of a GMV coverage would you be able to bear?

So in terms of the Smart Store growth, you've asked about the -- due to the base effect from the COVID-19 that we've experienced last year, and there was some impact from the strike of the delivery providers. But internally, if you look at the measures that we are currently monitoring in terms of number of stores that are being opened and number of purchases, the measures are quite healthy. With regards to delivery, there were some issues with returned products. So we think that in the second half of the year, the impact from that is going to be quite marginal. So therefore, the KRW 25 trillion target that we have communicated at the beginning of the year, we will be able to achieve that with no difficulties. At this point in time, compared to the market growth, the household necessity segment growth has been very high. And NAVER had some weaknesses on that product category. We were short on the types of products that we were providing in our lineup. But with the strong collaboration with e-mart, we'll be able to cover fresh foods as well as household FMCG products better in the second half. And with the introduction of the quick delivery, we will be able to further strengthen our capabilities in that regard. And also, in terms of the -- we also had a very strong membership alliances, and we've launched the family membership program as well and have seen the membership number for NAVER go up quite solidly and that had also had some positive impact. So we think that in terms of the growth, we are well on our way. Your second question on the logistics capacity that we are co-building together with CJ Logistics, how much of a GMV creation would that bring, with the cooperation, what we are currently doing is we are really boosting our capability to provide quick delivery for FMCG products and fresh foods. That's an area that we are currently cooperating on. Together with CJ Logistics, we are jointly developing logistical system, IT system and cooperating on the technology side, logistics and fulfillment side as well. So we are now seeing that the stores in our branded stores are selecting CJ Logistics as their partner of choice. And in terms of the fulfillment, basically, we are going to expand the size and capacity by more than 10x as we go forward. So our objective is that by 2025, we want to lay the basis for nationwide same-day delivery capabilities. In terms of the size of the investment, the volume target as well as the price and -- the fulfillment price, with regards to those specifics, that is currently under discussion. So please understand, I will not be able to share with you any specifics as of yet.

The following question will be presented by Kim Jingu from KTB Investment Securities.

My first question is that I see that NAVER is going at partnering up with other logistical providers like CJ Logistics and other fulfillment companies. How much of a lead time saving were you able to bring from these types of partnerships and cooperation? And what impact or the extent of that impact is on your NAVER Shopping's GMV? And if you could share a specific number, that would be helpful. Second is on metaverse. When are you planning to open game development feature for ZEPETO, game creators. If you could also elaborate as to how you plan to further strengthen the technical capabilities aspect as well as the control aspect, that would be helpful as well. But aside from the games, do you also have plans to expand your metaverse capabilities to commerce and education in these other segments as well?

Your first question relating to our partnerships with fulfillment companies, we've actually just opened fulfillment alliance center between NAVER as well as other logistical providers. Together with CJ Logistics, we've tested different systems -- our overall system, and we are, at this point, just beginning and embarked on this journey together. Through our fulfillment center, we actually have 2 very important focuses. One is on the sellers, the businesses of the fashion industry, the -- the vicinity area basically to be able to provide them with a system that could facilitate with their logistical needs. And on the other side is a system that would also help with a very quick delivery to provide better convenience to the users. So there are 2 focuses: one is on is business and one is on user. So what we have done is, we were able to lay the basis for the system where SMEs could very conveniently and efficiently use the system for their logistical needs. Through the system, we hope to see more transactions and more relationship forms based off of this platform, and we want new startups in the logistical segment to actually come in and be onboarded on the system to leverage those capabilities. In 2020 -- as of June of 2021, we have actually tested the quick delivery. At this point, we have 36 stores in our branded store platform, and we've seen for them, the total amount of volume had actually increased by about 47% with the introduction of the quick delivery. By end of the year, we think that the branded store number is going to go up 150 to 200, and those stores will be able to benefit from the quick delivery capabilities. After we launched the NFA, the alliance system, we've also seen that the number of quotation inquiries for branded stores and small stores actually go up by more than tenfold. And we think that the speed of growth in the second half is going to be much faster. However, in terms of the specific GMV figure, it's actually hard to say at this point. I think as we go into the second half, we will be able to provide you with more concrete figures.

In terms of your second question on ZEPETO, basically, ZEPETO has a global subscriber of 200 million. And basically, this is a platform where creators can create fun content, and this is through which people could actually communicate while marketing. We're very much focused in making this into an organically growing basis for our users. Recently, we've seen advertisements grow with regards to brands like Samsung Electronics, Hyundai Motors, [indiscernible] and that drove the overall revenue 70% year-on-year. In the second half, we plan to introduce different tools that the creators could actually use for creating their content and also further strengthen the live streaming and introduce services and tools that could help them with live streaming and animation as well. Going forward, we want to really develop this platform as a participatory platform where users can actually enjoy different content or even use it as a Karaoke room. In terms of the game features under ZEPETO, basically, there are currently user-generated avatars that could be used in specific items. We are looking to set up -- we have a ZEPETO studio. And right now, we have about 20,000 officially made ZEPETO map. There also could be user-generated maps as well. But at this point, there are only game elements in the official maps, I mean, by ZEPETO. But going forward, depending on how things go, we would be able to also include it in the user-generated maps as well. But in terms of the specifics, we would have to wait a bit more, and we would have to let things develop a little more for us to be able to communicate more to you.

The following question will be presented by Stanley Yang from JPMorgan.

My question relates to NAVER Financial. Your pay later service, when do you plan to commercialize the service? What do you think is going to be the size of the market and size of your business? How much of a working capital do you think is required? What do you think is going to be take rate? Can you provide some color on the monetization? And I understand that there is a cap as to -- cap set at KRW 300,000 under the regulation. And also, if you could share your views with regards to that. And regarding the merchant loans, what is the current balance? And how much do you think it could actually grow going forward? And do you have an IPO plan?

This is Sang-Jin, the CFO. Relating to your question on buy-now-pay-later beta test update, basically, for the frequent users of NAVER Pay, we have started a pilot beta test as of April 15, and we are, at this point, gathering their user behavior as well as data and running analysis. I would think that some of the analysts on this call as well as other people may be undergoing that beta test. But the initial and preliminary outcome that we are seeing is quite positive. So in the second half of the year, we plan to expand the scope of users who would be under that beta test in the second half of the year. Through -- based on the insights that we get from this analysis, we would continuously make our credit scoring system more sophisticated and make our service more stable so that come next year, we could allow more of NAVER Financial to NAVER Pay users to really enjoy the convenience that this brings. At this point, the size of our beta test is not that big. What we are doing is we randomly sampled the Pay users based on their number of purchases and their average usage behavior. So with that data pool, it's at this point difficult to actually make projections about the overall market size or the working capital needs and profitability outlook. But as we move into next year and as we broaden the scope, I believe that we will have a better sense of it. In terms of the regulatory constraints on setting a cap on the pay-later scheme, we believe that once that cap is lifted or expanded, of course, there will be more opportunity from our perspective. Second question on the merchant loans. Together with Mirae Asset Capital last December, we have developed an alternative credit scoring system, based off of which we have launched a Smart Store merchant loan product. And already, together with the Woori Bank, we have developed another loan product, and this is scheduled to be launched in the third quarter. We believe that as the GMV of the Smart Store continue to rise, our loan original loan amount will also increase. In terms of the size, we would have to wait and see how the market develops. For the time being, we have the qualification -- or qualification of the applicants were set at 3 consecutive months of revenue of above KRW 1 million. But we have lowered that qualification to KRW 500,000, hence expanding the number of people who are eligible for application of the loan. Rather than setting a specific target, what we want for the time being is that we want these merchants to think of NAVER Financial's merchant loan products. First, we want that to be at the top of the mind when they think that they need -- when the merchants want to -- when they want to lend money. And when they feel that they need money, we want them to think of NAVER financial's product first. Of course -- and last question on IPO plan, yes, we would always have to keep a very long horizon when we think of a potential IPO. As of now, we do not have any specific timing in mind.

The following question will be presented by Oh Dong Hwan from Samsung Securities.

In terms of the Smart Store providers as well as once you finish the logistical centers for your fresh food delivery, would you also be providing the early-hour delivery just like Coupang and other e-mart is doing? And also using of a single shopping cart, would you support that as well? And second, you've mentioned that there needs to be continuous investments on the commerce side. So going forward, do you have plans to include your operating profit growth as part of your KPI?

First question on whether we would be able to support use of a single shopping cart just like e-mart and Coupang, as we said, we will be launching NAVER e-mart grocery services. It is upcoming. At the beginning of that collaboration, only -- the users would only be able to put in e-mart product into that e-mart shopping cart. But e-mart is a provider of different types of logistical services. So we are, at this point, discussing different possibilities in terms of logistics and distribution. So we believe that we will be able to find areas of cooperation. Well, for the time being, we will not be able to support that single cart service at the moment, but as we go forward, there are many possibilities that we can think of.

Second question, whether we are planning to include operating profit as part of our KPI, as we stated at the beginning in our opening presentation, if you look at the driver behind the 5 consecutive quarters of high streak of top line growth is actually investment. It is supported by investment and that investment is now manifested in our revenue, operating profit and net profit as well. We think that for the time being, rather than focusing overly on profit, we need to focus on the growth of our top line because we need to continuously expand our domestic business as well as global overseas business. If you look at our indicators like the operating profit margin in the past, some of the NAVER incumbent businesses were considered to be of high-margin business, like search and display ads, for instance. NAVER at this point is migrating into a new business area as well, which includes commerce, fintech, content and cloud business. And in the second quarter, there were -- some of these business areas actually surpassed 50% of the total share. So I think it is key for NAVER at this point to bring additional growth from these new business areas. So bringing top line growth from these new business area is very important. At this point, we are not -- we have not singled out profit expansion as our key target, but aside from -- if there are no any special circumstances or events, we believe that in the second half, we will be able to maintain the operating profit and operating profit margin that we have seen in the first half of this year.

The following question will be presented by Soyun Shin from Crédit Suisse.

My question relates to, first, your Webtoon. You have now closed the process for integrating Wattpad. In the North American market, in order for you to further increase ARPU, what are some of the business models that you are currently considering? And when would you be adding those BMs? And you've also completed the integrated process with Z Holdings? What would be your LINE Manga strategy going forward?

Now regarding our strategy to expand into the North American market, after we completed the Wattpad acquisition, basically, as you know, in May, what we did -- we also completed the Webtoon and Wattpad integration process, and thanks to that, we have become a #1 storytelling platform with 6 million creators and 167 user base. As of end of June, we have also launched Wattpad Webtoon Studio and supported by a 1 billion IP -- original IPs, we will be able to develop motion pictures and publish different content base off of that. And so we believe that in terms of developing these original content, things are going well as planned. And also, we have raised KRW 100 billion of fund, which will be invested into those efforts. So in terms of the GMV and the revenue booking after the finish of the integration process, we will start to book that revenue figure starting June. The -- currently, the business model is native ad as well as subscription. But in terms of its impact on the overall Webtoon's GMV, the impact is not that big at this point in time. But as we go forward, we will be able to add on the business models of Webtoon that we have on the Wattpad as well. Second question on LINE Manga, in July, which is last week, actually, we launched LINE Manga version 2.0. We are continuously improving on the stability and usability of this version. And in this process, we are continuously enhancing the user loyalty and increasing the GMV as well. In order for us to regain the #1 position in [ LINE ] Manga application market, we are strengthening production of content and sourcing of content and also have changed the recommendation logic and diversified the benefits that we give to our users and also diversify our CRM so that we can further drive up the visit ratio, people's return ratio and to really drive up higher consumption and usage of these content. Thanks to these efforts, we are looking forward to a better result, more positive result at the end of the year.

The following question will be presented by Park Seyon from Morgan Stanley.

I have 2 questions. If you look at your commerce revenue, you've mentioned that there was a year-on-year growth of 43%. Your Smart Store GMV growth was around 40%. So if you were to break down the commerce revenue growth because there is also shopping search as well as outlink-related revenue, if you look at that breakdown, would that mean that your shopping search-related revenue was quite positive. If you could clarify that, that would be helpful. And second, in the beginning of the year, during the Analyst Day, if my memory is correct, I heard that you're going to collaborate with Shinsegae department store and open luxury boutique. And I think I also heard that the grocery service was supposedly to be opened during the summertime. Has there been a delay in this overall time line? If so, why? And also when would we be able to see the opening of the luxury boutique?

Responding to your first question, our commerce revenue, yes, it was about 42.6%. Our Smart Store GMV growth was 40%. And under our commerce revenue, as you said, we have commerce advertisement as well as the outlink that you mentioned. It's our partnerships and alliances with the outside party. In terms of the Smart Store-related aspect, there was a growth. On the outlink side, there was a slight dip. But the biggest difference is, last year, June of last year, we did not have a membership service, but Q2 of this year, we had revenues being captured under the membership service, and that had an impact, driving the total commerce revenue up 43%.

During the Analyst Day, we've shared time line for groceries, and it has been pushed by about 3 months. At this point, operating with e-mart on the fresh food side, the grocery side, that is more priority for us. That's an area that we will be focusing on in Q4 of this year. There's been a slight delay on the grocery and the fresh food side because we are discussing the most optimal way to provide the early-hour delivery as well as the follow-on logistics system. So once we deal with that, then we will focus on talking about the luxury boutiques as well. It will be hard to pinpoint a specific timeline at this point in time for that luxury boutique. So we will share with you once that becomes available. There are individual branded stores that are coming on board. But once again, we are in discussion with Shinsegae department store, talking as to whether there will be an individual [ respective ] cooperation and also cooperation on the Shopping LIVE! side as well. So all of these aspects once things become much more specific, we will be able to share with you. The individual level brand negotiation or discussion is ongoing.

We are under time constraint, so we will be only taking 2 more questions, and I would like to ask that you ask only 1 question each.

The following question will be presented by Lee Moonjong from Shinhan Financial Investment.

You have mentioned that you want to grow your Smart Place business to a size that is on par with Smart Store. To do that, I would think that delivery and quick commerce will be important. What are your strategies there?

So in terms of the Smart Place and with regards to the restaurants, yes, delivery of food does take up a bit -- quite a bit of a portion. But what we've seen looking at the data is that there's greater need for people to actually find out about a specific location or place offline. So we've seen increases in the queries related to such locations. So we want to utilize Smart Place in a way that vendors or businesses will be able to use this to be able to showcase their stores and also manage their customers and to adopt a better review or feedback system that could eventually help these merchants and businesses. So marketing solution is an aspect that we are thinking of by providing very helpful marketing solutions and tools to these businesses, we will be able to help them grow their business. Right now, we're providing booking, ordering and payment features, and we will be thinking very deeply as to how we could optimize the features of NAVER Pay payment online on the offline side as well. Currently, the types of businesses that use booking service under our Smart Place are restaurants and even hair shops and hotels and accommodations. So we will be continuing to see growth in terms of the demand and usage on that side. And as that happens, there will be greater need for effective types of marketing tools. These businesses would want to advertise their business under Smart Place. That's why we are running Smart Place advertising, and it is under a pilot test in July. We will eventually want to also connect this with the [ POS ] system as well. Smart Place, we want to be able to become a platform for the offline businesses where they will be able to issue coupons and give out stamps and provide alerts to their frequent customers when they actually come visit those stores. So we will be developing more useful tools to the level of the types of tools that we provide to Smart Store. And also, going forward, the businesses that are using Smart Place can eventually also open up their stores in the Smart Store platform and vice versa because Smart Store operators would also have an offline site as well. So there will be different connections and nexus between the on and off-line businesses. We will provide tools that would allow for that connection.

The last question will be provided by Lee Dong-ryun from KB Securities.

My question relates to guidance of your second half marketing expense with Wattpad acquisition and business expansion. There is going to be higher marketing spending. And also, we've seen for 2 years e-commerce revenue go out. And with regards to the marketing spend as well, it was also showing an uptrend. Do you think that uptrend will continue?

Regarding our Webtoon marketing expense, including reflected by the acquisition of the Wattpad as well, in the first half, what we really focused on was turning our loyal -- highly loyal users into a paying user. So if you look at marketing costs on a year-over-year and Q-on-Q basis, there was a slight dip. But in the second half of the year, we expect competition in Japan to actually really fire up. So in order for us to gain an upper hand in that type of a competitive landscape, we will need to spend some level of marketing expense. But we will continue to look at our internal target and set as to what appropriate level of marketing spend it should be. So in Japan, there could be a slight increase, but in other areas, the marketing spending is going to be quite flat. In terms of commerce, in marketing, we focused on expanding our Plus memberships, and as our commerce revenue goes up and commerce GMV goes up, naturally, the marketing expense also shows an uptrend, but that impact on our bottom line is actually quite neutral. In Q2, there was a slight increase. And there was an increase in terms of Pay-related promotion. But if you look at the total share out of the entire pie, then the impact has somewhat become more mitigated. So overall, the things are quite stable.

Thank you. This ends Q2 2021 earnings presentation of NAVER. Thank you for joining us, and we look forward to your support as we go forward. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]